Harvard University raised a record $1.2 billion in annual donations yet warned it faces a tight budget because of its underperforming endowment, which has faced internal criticism over its management.

The fundraising total, the second-largest ever in higher education and the biggest for Harvard, demonstrates the concentration of wealth at American colleges. Harvard’s donations amounts to more than the value of investments of many big schools including the University of Kentucky and the University of Tennessee.

Harvard’s fundraising total, disclosed Tuesday for the year ended June 30, also shows how the richest colleges can offset losses and weak endowment returns by appealing to wealthy alumni. In the same year, Harvard’s $35.7 billion endowment posted a 2 percent loss for fiscal 2016, among the worst of its peers.

Still, Harvard, which ended the year with a $77 million surplus, warned money is getting tight. While the fundraising campaign is strong, the overall outlook “suggests more restraint on spending will be called for than in the last few years,” Thomas Hollister, Harvard’s chief financial officer, told the Harvard Gazette, a school publication, as it released its financials in an annual report.

Hollister didn’t say where spending may slow and the university declined further comment. Harvard reached a tentative deal with dining hall workers last week to end a strike over salaries and health care costs. The school is in the middle of a massive expansion of its Cambridge, Massachusetts campus across the Charles River that was delayed and scaled back after steep endowment losses following the 2008 global financial crisis.

Harvard said it’s dependent on the endowment to subsidize its budget so it must slow spending when investment returns trail as they have in recent years. The university said it transferred $1.7 billion out of the fund to support financial aid, research and other academics, accounting for 36 percent of total revenue for fiscal 2016.

In the past year, Congress has been questioning whether colleges could use their wealth to offset spiraling tuition. In the report, Harvard took on those concerns. “At a time when the costs of higher education are understandably under scrutiny, some point to endowments as repositories of underutilized and excess wealth,” Hollister and Paul Finnegan, Harvard’s treasurer, wrote in the annual report. “This thinking is misguided. Harvard’s endowment is actively deployed every year as the university’s largest source of revenue for operations.”

Trailing Returns

Hollister said Harvard aims to pay between 4 percent to 6 percent of the endowment annually for the operating budget, with a target of about 5 percent. The endowment posted an annualized 5.9 percent return for the past five years through June 30, compared with 10.3 percent at Yale University. An internal McKinsey & Co. report, which Bloomberg disclosed last week, cited concerns from within the fund that it had set “easy to beat” goals, damaging its long-term performance.

Harvard and Stanford University have long led the charts in fundraising. Giving at Harvard has topped more than $1 billion in each of the past three years, according to annual reports. In fiscal 2015, Stanford set the one-year record of $1.6 billion, though it included some $600 million in art.

John Paulson, the billionaire hedge fund manager, gave $400 million in 2015 to Harvard’s engineering school, the biggest donation in the college’s 379-year history. The donation surpassed a $350 million gift in 2014 from the family of the late T.H. Chan, for whom the Chan School of Public Health is now named.

Harvard’s campaign for gifts and pledges, which was launched in 2013 and isn’t scheduled to end until June 2018, has collected more than $7 billion as of September, according to the school.